Suntide Sandpit, Inc., a Texas Corporation Mike Hurst, Individually Phil Hurst, Individually And Erma Stillwell v. H & H Sand and Gravel, Inc., a Texas Corporation

• Court: Court of Appeals of Texas
• Decided: July 19, 2012
• Docket: 13-11-00323-CV
• Status: Published

Opinion

NUMBER 13-11-00323-CV

COURT OF APPEALS

THIRTEENTH DISTRICT OF TEXAS

CORPUS CHRISTI - EDINBURG

SUNTIDE SANDPIT, INC., A TEXAS CORPORATION; MIKE HURST, INDIVIDUALLY; PHIL HURST, INDIVIDUALLY; AND ERMA STILLWELL, DECEASED, Appellants,

v.

H & H SAND AND GRAVEL, INC., A TEXAS CORPORATION, Appellee.

On appeal from the 148th District Court of Nueces County, Texas.

MEMORANDUM OPINION Before Chief Justice Valdez and Justices Garza and Wittig1 Memorandum Opinion by Justice Wittig

1 Retired Justice Don Wittig was assigned to this Court by the Chief Justice of the Supreme Court of Texas pursuant to the government code. See TEX. GOV’T CODE ANN. § 74.003 (West 2005). This appeal stems from the trial court’s grant of a summary judgment in favor of

appellee, H & H Sand and Gravel, Inc. (“H & H”), a Texas corporation, against

appellants, Suntide Sandpit, Inc. “(Suntide”), a Texas corporation, Mike Hurst,

individually, Phil Hurst, individually, and Erma Stillwell, deceased. In four issues,

appellants challenge the summary judgment granted against the three individual

appellants as well as the summary judgment granted against Suntide. We reverse and

remand.

I. BACKGROUND

Appellee sued Suntide and the other appellants for breach of contract, breach of

constructive trust, negligence, negligence per se, fraud and breach of constructive trust.

The City of Corpus Christi was also a defendant but was dismissed following its plea to

the jurisdiction in November 2006.2 Beginning in 1999, appellee provided concrete and

sand in connection with a construction project for the City of Corpus Christi. Although

the City paid Suntide over $200,000, appellee contended that Suntide did not pay it a

balance due of $57,251.07. Appellee brought suit in 2002. Suntide failed to pay

franchise taxes and its corporate charter was forfeited on February 9, 2007. The

charter was not reinstated. Appellee moved for summary judgment against only

Suntide but all appellants responded to the motion. The trial court entered judgment

against all appellants, jointly and severally, for $57,252.07 in actual damages plus

2 The City’s plea to the jurisdiction was the subject of two interlocutory appeals to this court. See H & H Sand & Gravel, Inc. v. City of Corpus Christi, No. 13-06-00677-CV, 2007 Tex. App. LEXIS 8878 (Tex. App.—Corpus Christi Nov. 8, 2007, pet. denied); City of Corpus Christi v. H&H Sand & Gravel, Inc., No. 13-05-306-CV, 2005 Tex. App. LEXIS 10061 (Tex. App.—Corpus Christi Dec. 1, 2005, no pet.).

2 $300,000 in punitive damages for conversion of trust funds, negligence per se, and

gross, willful and wanton acts constituting actual or constructive fraud, plus attorney’s

fees, and post judgment interest.

II. STANDARD OF REVIEW

We review a summary judgment de novo. Valence Operating Co. v. Dorsett, 164

S.W.3d 656, 661 (Tex. 2005). Summary judgment under rule 166a(c) is proper when a

movant establishes that there is no genuine issue of material fact and that the movant is

entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c); Randall’s Food Mkts.,

Inc. v. Johnson, 891 S.W.2d 640, 644 (Tex. 1995). When the trial court grants the

judgment without specifying the grounds, we affirm the summary judgment if any of the

grounds presented are meritorious. FM Props. Operating Co. v. City of Austin, 22

S.W.3d 868, 872–73 (Tex. 2000). Evidence favorable to the non-movant will be taken

as true in deciding whether there is a disputed material fact issue that precludes

summary judgment. Nixon v. Mr. Prop. Mgmt. Co., 690 S.W.2d 546, 548–49 (Tex.

1985). Every reasonable inference must be indulged in favor of the non-movant and

any doubt resolved in its favor. Id. at 549.

A party may move for summary judgment under rule 166a(i) on the ground that

there is no evidence of one or more essential elements of a claim or defense on which

an adverse party would have the burden of proof at trial. TEX. R. CIV. P. 166a(i);

Western Invs., Inc. v. Urena, 162 S.W.3d 547, 557 (Tex. 2005); Duvall v. Tex. Dep’t of

Human Servs., 82 S.W.3d 474, 477 (Tex. App.—Austin 2002, no pet.). Unless the

nonmovant produces summary judgment evidence raising a genuine issue of material

3 fact on the challenged elements, the court must grant the motion. TEX. R. CIV. P.

166a(i) & cmt. 1997; Urena, 162 S.W.3d at 548; Duvall, 82 S.W.3d at 477–78.

While appellee does not argue to us that its motion for summary judgment was

brought under Texas Rule of Civil Procedure 166a(i), and indeed the motion itself does

not specifically avail the rule, appellee’s mention of the rule prompts us to observe that

a motion for no-evidence summary judgment that only generally attacks a factual

theory, without specifying the elements of the claims being attacked, is insufficient to

support a no-evidence summary judgment. See Garcia v. State Farm Lloyds, 287

S.W.3d 809, 819 (Tex. App.—Corpus Christi 2009, pet. denied) (noting that if a no-

evidence motion for summary judgment is not specific in challenging a particular

element or is conclusory, the motion is legally insufficient as a matter of law and may be

challenged for the first time on appeal); see also McConnell v. Southside Indep. Sch.

Dist., 858 S.W.2d 337, 342 (Tex. 1993) (stating that a motion that fails to present

grounds is legally insufficient as a matter of law).

Rule 166a(i) is clear in its requirement that the motion must state specifically the

elements of the claim challenged, and the comment to the rule further provides that the

"motion must be specific in challenging the evidentiary support for an element of a claim

or defense; paragraph (i) does not authorize conclusory motions or general no-evidence

challenges to an opponent's case." TEX. R. CIV. P. 166a cmt. 1997. We hold that

appellee’s motion for summary judgment does not meet the requirements for a no-

evidence motion and will accordingly be treated as a traditional motion for summary

judgment. Id.

III. DISCUSSION

4 The gravamen of appellee’s summary judgment motion rests on Suntide’s

forfeiture of its corporate charter. We first address the claims against the three

individual appellants. Appellee sought to have individual liability imposed upon them by

virtue of the Texas Tax Code’s provision attributing personal liability in the event of the

forfeiture of a corporation’s charter. The code provides:

§ 171.255. Liability of Director and Officers

(a) If the corporate privileges of a corporation are forfeited for the failure to file a report or pay a tax or penalty, each director or officer of the corporation is liable for each debt of the corporation that is created or incurred in this state after the date on which the report, tax, or penalty is due and before the corporate privileges are revived. The liability includes liability for any tax or penalty imposed by this chapter on the corporation that becomes due and payable after the date of the forfeiture.

TEX. TAX CODE ANN. § 171.255 (West 2002).

The supreme court in Schwab v. Schlumberger Well Surveying Corp., 198

S.W.2d 79 (Tex. 1946), construed a predecessor statute with provisions virtually

identical in import to section 171.255. In that case, the officers of the corporation

renewed and extended a promissory note after the corporation's privileges had been

forfeited. Id. at 80. Discussing similar enactments of comparable statutes in other

jurisdictions, the supreme court observed that such statutes, though held to be remedial

in some instances, are also penal in nature and it is generally held that they must be

strictly construed and cannot be extended beyond the clear import of their language. Id.

The language of the statute is concerned with the creation or incursion of debts

by the corporation after the franchise report is delinquent. See TEX. TAX CODE ANN. §

171.255(a) (stating that a director or officer is liable for "each debt of the corporation

that is created or incurred" after the date on which the report, tax, or penalty is due); see

5 also § 171.255(c) (stating that a director or officer is not liable if they show "debt was

created or incurred” over director’s objection or without director’s knowledge). It is the

act of creating or incurring a debt when the franchise report is delinquent that triggers

personal liability once the corporate privileges are forfeited. Paccar Fin. Corp. v. Potter,

239 S.W.3d 879, 883 (Tex. App.—Dallas 2007, no pet.). “If no debts are created or

incurred after the delinquency, there is no personal liability. Therefore, the date the

corporate debt is created or incurred is crucial. We conclude the legislature intended

that personal liability attaches only to those directors and officers of the corporation at

the time the debt is created or incurred.” Id. These directors and officers abused the

corporate privilege by continuing to create and incur debts after the franchise tax is

delinquent and are, therefore, "culpable." Id. (citing Schwab, 98 S.W.2d 79, 81) (prior

version of statute intended to "prevent wrongful acts of culpable officers of corporation");

see also First Nat'l Bank of Boston v. Silberstein, 398 S.W.2d 914, 916 (Tex. 1966)

("[P]ersonal liability is determined by the acts of [the directors and officers] in consenting

to and approving the debts of the corporation where knowledge of their creation is

shown to have come to them in the regular course of business of the corporation.").

Because appellee offered no proof that any debt was created or incurred after Suntide’s

charter was revoked in 2007, we hold the individual appellants are not personally liable

under the tax code. See TEX. TAX CODE ANN. § 171.255(a); see Beesley v. Hydrocarbon

Separation, Inc., 358 S.W.3d 415, 423 (Tex. App.—Dallas 2012, no pet.) (holding that a

debt was created or incurred after forfeiture of HSI's charter; therefore, officer and

promoter was not individually liable under § 171.255).

6 Furthermore, section 171.255 does not apply to tort judgments predicated on

negligence liability. Williams v. Adams, 74 S.W.3d 437, 442 (Tex. App.—Corpus Christi

2002, pet. denied). The rule of strict construction is applicable to a statute penal in

nature, and as such, it should be strictly construed and must not be extended beyond

the clear meaning of its language. See Schwab, 198 S.W.2d at 81; Davis v. State, 846

S.W.2d 564, 570 (Tex. App.—Austin 1993, no writ). Thus, construing the statute strictly

in a manner that limits its application against the person upon whom the penalty is

sought to be imposed, we held that section 171.255 cannot be used to impute personal

liability to an officer or director of a corporation for a corporate debt when the "debt" at

issue is a tort judgment based on negligence liability. Williams, 74 S.W.3d at 442.

With no citation to authority, appellee seems to argue that the individual directors

are burdened by section 171.252(1), providing that if corporate privileges of a

corporation are forfeited, the corporation shall be denied the right to sue or defend. See

TEX. TAX CODE ANN. § 171.252 (West 2008). The plain language of the statute applies

only to the corporation and the penalty to an officer or director under the forfeiture

provision is to assign liability for corporate debt pursuant to section 171.255. See id.

Appellee presented no evidence against the individual appellants on any of its other

theories, and thus failed to sustain its summary judgment burden. See TEX. R. CIV. P.

166a. We sustain appellants’ three issues challenging the summary judgment against

Mike Hurst, individually, Phil Hurst, individually, and Erma Stillwell, deceased.

IV. SUNTIDE

In their fourth issue, appellants assert the trial court erred in granting summary

judgment against them for actual damages in excess of $43,200.10, plus exemplary

7 damages, attorney’s fees and costs. First, we observe that summary judgment under

rule 166a(c) is proper when a movant establishes that there is no genuine issue of

material fact and that the movant is entitled to judgment as a matter of law. TEX. R. CIV.

P. 166a(c); Johnson, 891 S.W.2d at 644. It would appear to us that appellee relied

almost exclusively upon tax code section 171.252(1) to justify its summary judgment.

See TEX. TAX CODE ANN. § 171.252(1). The record before us indicates no evidentiary

hearing on attorney’s fees, punitive damages, or even actual damages allegedly

suffered by appellee under its claims for conversion of trust funds, negligence per se,

gross, willful and wanton acts constituting actual or constructive fraud, or negligence.

Even assuming that Suntide could not defend against these claims after forfeiture of its

charter, there are multiple fundamental problems with appellee’s motion for summary

judgment and the trial court’s action in granting such motion without appellee having

established its claims as a matter of law.

First, as appellants point out, appellee did not establish the existence of fraud.

Nor did appellee provide proof that appellants were negligent, negligent per se, that

they committed gross, willful or wanton acts, or converted trust funds, et cetera.

Arguably, appellee proved its entitlement to breach of contract damages in the lesser

amount of $43,200.10 because that sum was admitted by Suntide. Appellee’s own

pleadings showed a discrepancy concerning the contract damages amount allegedly

owing between $57,251.07 and $47,213.73. An affidavit, not from Suntide, but from

one of the individual defendants, indicated a credit was due to Suntide reducing the

principal amount to $43,200.10. Thus, even the alleged contract damages of

$57,251.07 were not established as a matter of law.

8 Whether or not Suntide has any ability to defend the lawsuit is problematic. First,

the law is established that it may appeal. In Bailey, the supreme court held that a

corporation that had ceased to exist could nevertheless appeal a trial court's judgment

against it. See Vanscot Concrete Co. v. Bailey, 853 S.W.2d 525, 526–27 (Tex. 1993)

(per curiam). The supreme court expressly disagreed with the court of appeals'

dismissal of Vanscot Concrete's appeal on the grounds that a nonexisting corporate

appellant cannot appeal. See id. The high court explained that "corporations have the

same right to have judgments against them revised by the appellate courts as have

persons, and that even extinguished corporations are entitled to a hearing before the

appellate courts." Id. at 526 (citing Tex. Trunk Co. v. Jackson, 22 S.W. 1030, 1032 (Tex.

1893)). Although Bailey did not concern the specific tax code provision at issue here,

our sister court concluded that the outcome should be no different when a corporate

charter was forfeited. See Cruse v. O'Quinn, 273 S.W.3d 766, 770–71 (Tex. App.—

Houston [14th Dist.] 2008, pet. denied). As the supreme court broadly stated, "the

reasoning for allowing a corporation which has ceased to exist to prosecute an appeal is

applicable in any circumstance." Bailey, 853 S.W.2d at 526–27.

We observe that a number of cases in addition to Cruse recognize that section

171.252 does not prevent a corporation that has forfeited its corporate privileges from

defending claims against it. See Mello v. A.M.F. Inc., 7 S.W.3d 329 (Tex. App.—

Beaumont 1999, pet. denied) (stating that, despite the clear language of § 171.252, the

statute has historically been limited to prohibit defendants from bringing cross actions,

not from merely defending lawsuits) (citing Midwest Mech. Contractors, Inc. v.

Commonwealth Const. Co., 801 F.2d 748, 752 (5th Cir. 1986); Bryan v. Cleveland Sand

9 & Gravel Co., 139 S.W.2d 612, 613 (Tex. Civ. App—Beaumont 1940, writ ref’d)); see

also Rimco Enters., Inc. v. Tex. Elec. Serv. Co., 599 S.W.2d 362, 364 (Tex. Civ. App.—

Fort Worth 1980, writ ref’d.n.r.e.) (such a corporation may interpose a defense purely

negative in character against a suit brought against it, and the plaintiff is still under the

duty of establishing his cause of action, and the corporate defendant may offer proof

which negates the plaintiff's case). We conclude that Suntide is not only entitled to

appeal but can also interpose a defense purely negative in nature.

However, we further conclude that damages under appellee’s claims were not

liquidated. Even a default judgment does not establish allegations pertaining to

unliquidated damages. First Nat'l Bank v. Shockley, 663 S.W.2d 685, 689 (Tex. App.—

Corpus Christi 1983, no writ). “Unliquidated claims include damages for personal

injuries, lost profits, consequential damages, exemplary damages, and reasonable

attorney's fees.” Id. The plaintiff must present evidence of unliquidated damages, and

this evidence must be both competent and consistent with the cause of action plead.

Id.; see TEX. R. CIV. P. 243. Again, appellee did not meet its burden of proof on its

alleged damages. See TEX. R. CIV. P. 166a(c).

Suntide also argues appellee is not entitled to recover exemplary damages for

breach of contract, citing Tony Gullo Motors I, L.P. v. Chapa, 212 S.W.3d 299, 304

(Tex. 2006). We agree. Furthermore, as appellants argue, exemplary damages require

both a pleading and presentation of evidence to show the extent of any knowing

conduct and that it was so egregious as to warrant exemplary damages. See Herbert v.

Greater Gulf Coast Enters., 915 S.W.2d 866, 872–73 (Tex. App.—Houston [1st Dist.]

1995, no writ). No such evidence was adduced here.

10 Finally, to support an award of exemplary damages, the trier of fact “shall

consider evidence, if any,” related to: (1) the nature of the wrong; (2) the character of

the conduct involved; (3) the degree of culpability of the wrongdoer; (4) the situation and

sensibilities of the parties concerned; (5) the extent to which such conduct offends a

public sense of justice and propriety; and (6) the net worth of the defendant. TEX. CIV.

PRAC. & REM. CODE ANN. § 41.011(a) (West 2008). The record does not disclose any

evidence, hearing, or consideration by the trial court of these mandatory factors.3

Considering the multiple discrepancies in appellee’s motion for summary

judgment and its failure to establish its claims and damages with no genuine issue of

material fact, we sustain appellants’ fourth issue.

V. CONCLUSION

We sustain appellants’ four issues and reverse and remand.

Don Wittig Justice

Delivered and filed the 19th day of July, 2012.

3 The trial court did not award the proposed $5,000,000.00 each for exemplary damages and instead interlineated $300,000.00.